Locking bias

All eyes are on the stock market this morning, as they appear to have bounced higher after hitting a significant floor of support.  This is the same floor that was tested in both late August as well as late September, when the market received its first correction of at least 10% in a number of years.  As mentioned in one of last week’s updates, this second correction could be a bad omen, as the only times we have experienced two 10%+ corrections in such a tight time frame were during the Great Depression of 1929, the Dot Com Bubble of 2000, and the Financial Crisis of 2008.  If current support fails to hold, we can expect the S&P 500 to drop another 80 points or so to the next floor of support.  That would match a level briefly experienced in October of 2014 after fears out of Europe forced the market lower.  Overall, 2016 has wiped away about 2 years of stock market gains.  This is certainly an issue of grave concern to the Federal Reserve.

Mortgage bonds have performed well during this time of stock market volatility.  In fact, mortgage interest rates have improved between 1/8% – ¼% since the Federal Reserve increased short term interest rates.  As the global economic picture becomes more clear, we can see the overall risks within the markets right now.  In fact, Michael Burry (his story was told in the movie The Big Short), the real life money manager who created the Credit Default Swap, recently raised concern about the size of debt now carried by the US and the impact that will have on our economy going forward.  As interest rates move higher, the US Government will be paying more interest than ever before.  This will certainly lead to increased taxes, which could cause a major economic slowdown.  This is a concern that receives very little talk amongst TV pundits.  Therefore, few citizens are concerned.  However, there is reason for significant concern. 

With the stock market making a break higher, there is little incentive to float a rate today.  If you have a loan that needs to close soon, now is a great opportunity to lock in the gains of recent weeks.